Tumbling home values boost mortgage defaults in Calgary

[Dion]

The most prominent foreclosure law firm in Calgary said business roughly doubled from 2007 to 2008, and that growth hasn't shown signs of relenting.

"Foreclosure rates are rising at a disturbing rate," said Harold Vickers of Vickers and Associates.

"We've been a firm that has been doing foreclosures for 25 years, and we have never seen this many foreclosures."

It used to be that courts, banks and mortgage lenders only had to close in on a handful of disaster cases: bad divorces, addicts, marijuana grow operations and people who otherwise fell apart. In good times, many could get emergency financing by borrowing against the steadily increasing value in their homes.

But now values are eroding.Foreclosures are claiming Calgarians who've invested in multiple homes or only had one, with good credit and with bad, Vickers said.

n a growing number of cases, Vickers finds borrowers who owe more than their home is worth.

And here's a recession-time twist: at a time when layoffs stalk offices throughout Calgary, his company has had to boost staff by more than 30 per cent to handle the bigger workload.

http://www.calgaryherald.com/opinion...897/story.html

[Deegee]

I'm sure that those monster HELOCs have nothing to do with this.

[Slava]

I haven't really looked at this, so I'm just wondering, but if we doubled from historical rock bottom figures does that still mean that the default rates are small?

In other words is this a case of media preferring to say "The rates are up by double" rather than saying "the rates are still historically not worrisome?"

Anyone in the know?

[fredr123]

From the article:

Since November, lenders have begun 949 foreclosure proceedings at Calgary's courthouse--more than in the six months before that, according to court data collected by Foreclosures Canada Information Systems, an investment company. And increasingly, those proceedings aren't ending in the borrower's favour because their property value has eroded, says company founder Wade Fenner.



The Calgary Real Estate Board lists about 125 condos and single-family houses for court-ordered sale, according to estimates by Mike Fotiou of First Place Realty. In his blog, he noted the Multiple Listing Service had only eight last March, including some grow ops.

[SportsJunky]

I think I saw a Lifestyle homes ad in the paper yesterday that was offering zero down and the first year at a reduced interest rate. I assume the interest then goes up substantially starting in the second year? Isn't this just what happened in the U.S. that caused a lot of foreclosures?

[OilKiller]

Yep, happening all over. We bough our house about a year and a half ago here in Edmonton and now it's worth $45,000 less than when we bought it. There goes any equity we had...stupid economy.

[fredr123]

Anecdotally, a lot of the foreclosures that I have seen of late involve people who made the ill-advised decision to become real estate moguls. These are people who leveraged themselves more than I would have thought possible in order to buy properties, fix them up and sell them for profit a few months later.

As the economy slumped, private investors got cold feet and starting calling loans or denying new funding. Suddenly these people found themselves in possession of a number of different half-developed properties. They had huge loans that suddenly became due and were faced with a market that wasn't exactly falling all over itself to take on the risk buying half-finished properties.

Falling property values have had a big effect as well. In one particular case, an upper-end townhouse project dropped in appraised value by about 12% between October 2008 and February 2009.

[fredr123]

Originally Posted by OilKiller

Yep, happening all over. We bough our house about a year and a half ago here in Edmonton and now it's worth $45,000 less than when we bought it. There goes any equity we had...stupid economy.

Hahaha! Sucker. We bought with zero down so we didn't lose anything... right?

[Slava]

Originally Posted by fredr123

Anecdotally, a lot of the foreclosures that I have seen of late involve people who made the ill-advised decision to become real estate moguls.

That is what I have to go on as well, and have seen the same. I blame that on the "Real Estate doesn't lose money, and you can just sell the property" attitude that some held up until last year.

[fredr123]

Originally Posted by Slava

That is what I have to go on as well, and have seen the same. I blame that on the "Real Estate doesn't lose money, and you can just sell the property" attitude that some held up until last year.

A bit off topic, but Global seems to be running ads for Homerun Investments a lot lately. The commercials are irritating but the spokesperson in the ads seems to really push that "real estate is a safe investment" mantra. I think the investors on the other end of the cases I mentioned above probably felt the same way. Now they have gone through a foreclosure and at the end of the day they have a chunk of land to call their own in a falling market. I'm willing to bet they signed up to be real estate investors and not real estate developers but that's exactly the position they are in after the foreclosure.

[Cowboy89]

Originally Posted by fredr123

A bit off topic, but Global seems to be running ads for Homerun Investments a lot lately. The commercials are irritating but the spokesperson in the ads seems to really push that "real estate is a safe investment" mantra. I think the investors on the other end of the cases I mentioned above probably felt the same way. Now they have gone through a foreclosure and at the end of the day they have a chunk of land to call their own in a falling market. I'm willing to bet they signed up to be real estate investors and not real estate developers but that's exactly the position they are in after the foreclosure.

Some bond fund that always advertises on the FAN who 'Guarentee a return of 8%, because they are backed by real assets' is such a gimmick and is borderline unethical. A lot of securities associations stress that it's unethical to make investment guarentees when the underlying securitiy and its returns are not backed by the government. Meaning that the people running places like this either:

A) Have respectible credentials but choose to operate in a way that puts them at risk,
B) Don't have respectible credentials in the first place, or
C) Represent firms that do not have a good code of ethics.

Any of the above options wouldnt' make me feel good investing with them.

I'm skeptical of pretty much all 'alternative investment vehicles' that get hocked on TV. Quite often they are extremely illiquid investments that have dubious prospects. The reason why they are advertising them on TV with catchy names hoping suckers pump in a pidly $1,000 per head, is because richer or institutional investors said 'no thanks get the fata out of my office'.

[mykalberta]

[photon]

Originally Posted by Slava

I haven't really looked at this, so I'm just wondering, but if we doubled from historical rock bottom figures does that still mean that the default rates are small?

In other words is this a case of media preferring to say "The rates are up by double" rather than saying "the rates are still historically not worrisome?"

Anyone in the know?

That was my question too. It's easy to throw up percentages of change but if it goes from 5 to 10 it's not a big deal.

Originally Posted by SportsJunky

I think I saw a Lifestyle homes ad in the paper yesterday that was offering zero down and the first year at a reduced interest rate. I assume the interest then goes up substantially starting in the second year? Isn't this just what happened in the U.S. that caused a lot of foreclosures?

The subprime problem in the US was more with the borrowers being sub-prime, not the mortgage product (though they had some really really bad mortgage products, this is nothing in comparison). Canada has much stricter rules to qualify a buyer, plus they are a lot more strict now than a couple of years ago.

But yes this kind of offering made things a bit worse, the big danger is people getting into properties they really shouldn't be considering. But as I said the lending rules help mitigate this in Canada.

Originally Posted by fredr123

Anecdotally, a lot of the foreclosures that I have seen of late involve people who made the ill-advised decision to become real estate moguls. These are people who leveraged themselves more than I would have thought possible in order to buy properties, fix them up and sell them for profit a few months later.

As the economy slumped, private investors got cold feet and starting calling loans or denying new funding. Suddenly these people found themselves in possession of a number of different half-developed properties. They had huge loans that suddenly became due and were faced with a market that wasn't exactly falling all over itself to take on the risk buying half-finished properties.

Falling property values have had a big effect as well. In one particular case, an upper-end townhouse project dropped in appraised value by about 12% between October 2008 and February 2009.

I'd agree with this, I'd be interested to know how many of these foreclosures are condos. I know one person who bought 8 condos in a project because they were only looking for $10,000 down to commit. Well now they're starting to get finished and he's completely screwed, he can't close, he was planning to do nominations for them all but can't find people to buy for what he's supposed to pay for them, and if he just walks away he's on the hook for whatever the builder looses I think.

[Shazam]

Originally Posted by mykalberta

= Ponzi Scheme.

[Ford Prefect]

"in a growing number of cases, Vickers finds borrowers who owe more than their home is worth."

Hello. 1984? Is that you?

[mykalberta]

I have a question.

Would people who default on a mortgage, then have to declare bankruptcy?

[Wookie]

Originally Posted by mykalberta

I have a question.

Would people who default on a mortgage, then have to declare bankruptcy?

I don't think so. In fact a mortgage doesn't even go on your credit report. I'm pretty sure you can just walk... then go buy another house.

Possibly part of the reason we're seeing this.

"hmmm, my house "a" ($80,000) is now worth 20% less than my mortgage ($100,000), I'll walk away, get house "b" for ($80,000) and save $20,000 or wait even longer and pay $70,000.

[DementedReality]

Originally Posted by Wookie

I don't think so. In fact a mortgage doesn't even go on your credit report. I'm pretty sure you can just walk... then go buy another house.

Possibly part of the reason we're seeing this.

"hmmm, my house "a" ($80,000) is now worth 20% less than my mortgage ($100,000), I'll walk away, get house "b" for ($80,000) and save $20,000 or wait even longer and pay $70,000.

im not saying you are wrong, but i find it hard to believe that this would be the case.

[Jetsfan]

This will be a bad few years for speculators, especially in downtown condos. In one building, Vetro, the price for a unit on the 32nd floor was dropped from $550 000.00 in November 2008 to $309 900.00 to 290 900.00 in December 2008 and then taken off the market because there were no takers.

Prices in Calgary are going to plunge in the next year back to 2002-2003 prices which were around $230 000.00. Too many properties, too few buyers.

[Wookie]

Originally Posted by DementedReality

im not saying you are wrong, but i find it hard to believe that this would be the case.

Yeah, I'm not sure on all the details, but I thought it could potentially work something like that.